ISLAMABAD: Pakistan Association of Large Steel Producers (PALSP) has urged the State Bank of Pakistan (SBP) for emergency rate cut, as the industry is barely surviving due to the devastating rains that have caused havoc to the country’s economy as well as the industry.
In a communication to the finance minister on Monday, the documented steel industry stated that our association accounts for over 70 per cent of the nation’s long steel being produced and it is unfortunate to state that today majority of our members are in distress due to the economic adversities created by record flooding coupled with some other factors.
The situation is far worse economically right now in comparison to any period in the history of Pakistan. At this point in time, more drastic measures are required than Covid relief measures if the industries are to survive. These measures need to be announced immediately if we want to protect millions of jobs and avoid social unrest in the country.
In Pakistan, 1.5 million people were reported to have been diagnosed with Covid-19, whereas, the flooding alone has caused 33 million people to become displaced, a challenge that is seen as 22 times worse than Covid outbreak as many of the areas are still underwater and eight million people have become poverty-ridden due to the natural catastrophe.
The cost burden of the floods on the economy can be seen to be crossing over $40 billion. The effects are only starting to be felt as Large Scale manufacturing contracted by a record 16.5 per cent in July.
“Things are only expected to get worse. Keeping decade-high interest rates hold zero logic as there is demand contraction across the board due to the floods. Commodity prices have softened, oil prices have come down and we are in a state of economic emergency, this is the time when SBP must act boldly to avoid social unrest and instability.”
The key rate currently stands at 15 per cent, the highest since the last two decades, last seen in April 1999. Industry experts believe that the unbearable benchmark interest rate of 15 per cent is unsustainable for industries while comparing it with other regional countries, the benchmark interest rate in Malaysia is 2.5pc, Bangladesh 3.08pc, and India 5.9pc.
It must be noted that the People’s Bank of China cut its rate on a one-year loan to 2.75 per cent from 2.85 per cent and injected an extra 400 billion Yuan ($60 billion) into lending markets after growth in factory output and retail sales weakened in July and home sales fell by double digits. “We request Federal Minister for Finance and Revenue, Senator Muhammad Ishaq Dar and the SBP to act now.”
PALSP further notes that the other economies such as the UK, the core inflation stands at 9.9 per cent and the monetary policy rate is at 2.25 per cent, signifying a real negative interest rate of -7.65 per cent. It would be prudent to note that the UK has announced a £150bn energy subsidy scheme, whereas, Germany has deployed €200bn in economic stimulus.
However, Pakistan’s core inflation stands at 13.8 per cent for September and CPI has softened month on month, along with a regional average interest rate of 3.82 per cent. Pakistan discount rate must be brought down to eight per cent effective immediately and further reduced in the coming quarters to a maximum of 6.15 per cent Kibor.
The steel industry, which is capital intensive business and due to worsening economic condition it is already facing severe liquidity crunch, whereas, many small to mid-sized mills have already shutdown. This will structurally damage the industry for decades to come.
According to PALSP, “What will Pakistan do when we try to reconstruct our 400 damaged bridges and 3,000km of roads because if SBP does not make emergency cuts, not many of the steel mill would remain under operation?”
Copyright Business Recorder, 2022
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